My latest series of articles was prompted by the recent Special Commissioners’ decision in the Gaines-Cooper case.
This was concerned primarily with assessments under sections 739-746 ICTA 1988 (transfers of assets abroad) and sections 660A-660G ICTA 1988 (settlements and the liability of the settlor). However, it was agreed between the parties that it would make sense to first consider the preliminary issues of the appellant’s residence, ordinary residence and domicile status.
Apart from setting out the very interesting facts of the appellant’s business and personal life (potentially excellent material for a short TV series), the Special Commissioners’ findings form an excellent summary of the principles of determining an individual’s
– Ordinary residence
– Residence status
All these are very important principles underlying liability to UK personal taxation. Most clients of UK advisers will, of course, tick all three boxes. It is where an individual is non-resident, non-ordinarily resident or non-domiciled that things get a little intense. They certainly did for Mr Gaines-Cooper.
As we have seen in so many other cases, domicile under the general law is very much a matter of fact. The Special Commissioners remind us of the legal principles and that the burden of proof to be discharged by an individual seeking to acquire a new domicile of choice is one rooted in the civil test “based on the balance of probabilities”. However, we are also reminded, based on some excellent authorities (especially the Estate of Fuld deceased (No 3) 1968) and Dicey and Morris in the Conflict of Laws, that the key tests for changing one’s domicile of origin are to be physically resident in another country with the settled intention to reside there permanently.
In a very full consideration, it was decided that, based on the facts in this case, these tests had not been satisfied. It was made clear that many factors would be taken into account and there was no one determinant. In the Gaines-Cooper case, relevant issues included:
– A relatively small geographic centre of interests.
– Maintained membership of clubs.
– His son’s schooling at Eton.
– A maintained residence.
– Frequent visits.
– Time spent in the new country and others as well as in the UK.
Also of relevance were other factors that may have indicated a contrary intention, for example:
– Statements of witnesses supporting his intention to have a new domicile of choice, with the Seychelles as his main home.
– The purchase of a business in the Seychelles to secure a residence permit.
– Statements about domicile by the appellant although here the Special Commissioners quoted Scarman J in the Fuld case: “A wealthy man cannot, by his interpreted declarations, alter the facts of his life.”
Weighing up all these things, it was found “on the balance of probabilities” that a sufficient intention to lose domicile had not been formed, based on the facts.
As part of the process of reaching this decision on domicile, the time spent in the UK was a very relevant factor. In arriving at the appellant’s day count, the Special Commissioners had, in accordance with the Revenue’s guidance note IR20, ignored days of arrival and departure and also special circumstances such as time spent undergoing a bypass operation.
The Special Commissioners stated: “In this appeal, we must apply the law as opposed to the provisions of IR20.”
It is this approach that appears to have captured the headlines but it must be remembered that IR20 only states practice and, on its face, states that HMRC in effect is not obliged to apply its provisions.
According to IR20, people who want to be considered non-resident must not spend more than 183 days in any single tax year in the UK. Over four tax years, the average number of days per year must not exceed 90. Individuals could come into the UK on one day and leave the day after the next. Even though they will have been here for three days, the day of arrival and day of departure will be ignored so they are only in the UK for one day for the 90-day test.
In this case, the day-count issue was discussed primarily in the context of the determination of domicile but it would also apply in determining residence and ordinary residence.
It is important to note that there has been no change of law in connection with domicile, ordinary residence or residence. This case reminds us that the facts of each case will be the key determinant based on the application of general principles. We are also reminded that HMRC is not obliged to apply IR20 slavishly as it is not law.
IR20 states as much by stating: “You should bear in mind that the booklet offers general guidance on how the rules apply but whether the guidance is appropriate in a particular case will depend on all the facts of that case…
“Some practices explained in this booklet are concessions made by the Inland Revenue. A concession will not be given in any case where an attempt is made to use it for tax avoidance.”